THE COLOR OF MONEY
Younger workers advised to put 15% into retirement plan
By Michelle Singetary
WASHINGTON — Here are some questions I've received from readers, with my answers and responses from experts:
Q. My company does not match my 401(k) contributions. What percent should I save in my retirement fund? By the way, I am married and in my late 20s.
A. First of all, good for you for thinking about saving for retirement at such a young age. And you get another pat on the back for wanting to contribute to your employer-sponsored plan even though there is no match.
According to a survey released earlier this year by CIGNA Retirement & Investment Services, fully one-third of "millennials" — people born after 1979 and who are just entering the workforce — fail to participate in their employer-sponsored 401(k) plans. This is more than twice the rate of nonparticipation of older baby boomers who soon plan to retire.
The CIGNA survey also found that young workers were 19 percent more likely than older boomers to label their 401(k)s "the benefit of yesterday."
If you are young, you have time on your side today. As Benjamin Franklin said: "Remember that time is money."
Dallas L. Salisbury, president and CEO of the Employee Benefit Research Institute, recommends that young people put at least 15 percent into their retirement plan and "do it consistently."
Q. I am buying a small rental house for $20,000. It already has a reliable tenant in it. Because I do not own my own home and I did not have money saved for a down payment, it was easier to take out a personal unsecured loan instead of a mortgage. Can I refinance a personal loan?
A. Wow. A house for $20,000 and a good tenant. You should be dancing a jig.
You need to check with the bank or credit union that you borrowed the money from to see if you can refinance, advises Laura Armstrong, vice president of public affairs at the Mortgage Bankers Association.
Q. How should I determine the amount of life insurance my wife and I would need to provide for our children if either one of us were to die?
A. Good question — and one many that parents fail to get an answer to.
"For the working parent or parents, if you need both incomes, then you need to determine how many years of your income you want to try to replace," says Sheryl D. Garrett, founder of the Garrett Planning Network, a nationwide network of fee-only financial advisers.
"I find that most people need at least 10 times their gross annual salary to cover expenses and to provide for the surviving family."
Garrett also says that people often forget to get life insurance on the stay-at-home parent. "I recommend no less than $250,000 if they have minor children," she says. "The reason? The working spouse would need to pay to provide services that the stay-at-home parent would provide."
If you're unsure about how much life insurance you need, try the life insurance needs calculator created by the Life and Health Insurance Foundation for Education, otherwise known as LIFE, at www.life-line.org.
Q. What is the deal these days with getting married and "inheriting" your spouse's credit rating? Is it true that once you are married, a spouse with negative credit ratings could hurt a spouse with positive credit ratings?
A. The answer is true and false.
Technically, in most cases, you don't "inherit" the bad credit rating of your honey simply by getting married.
But it is true that your spouse's bad debts can become a problem for the family. For example, your spouse's poor credit could prevent the two of you from buying a home. However, if you keep your credit accounts separate and you don't become an authorized user on any of his or her credit accounts, then your good credit shouldn't be tarnished by the bad credit record of the spouse, said Evan Hendricks, author of "Credit Scores & Credit Reports: How the System Really Works, What You Can Do."
Q. How long do I need to keep my 401(k) and Roth IRA statements?
A. You should permanently keep all your year-end statements, suggests Cheryl A. Costa, a certified financial planner based in Natick, Mass. "If you want to be conservative, you can keep the quarterly statements, but once you get to
December you can just keep the year-end summary and then discard the previous quarterly statements," Costa says.
Michelle Singletary writes for The Washington Post.
